Mining Area C Iron Ore Royalty

As part of Iluka's series of briefing papers, we have developed the attached on Iluka's Mining Area C iron ore royalty.

Iluka engaged CRU Strategies to provide its perspective to the company on the relative cost position of BHP Billiton's Mining Area C operations; its views on the position of this resource in any merger with Rio Tinto, as well as considerations related to the valuation of this unique royalty stream, including considerations as to whether a typical mining company average weighted cost of capital should be applied to valuation of the cash flow stream. CRU's assessment on Mining Area C are contained in the briefing paper in italics.

As stated in the overview of the paper:

�          Iluka has access to a world class, long life, low risk future cash flow stream through its “life of resource" iron ore royalty associated with specific tenements in BHP Billiton’s Mining Area C province in Western Australia.

�          Iluka has exposure to both price and volume growth (through planned production expansion) via a combination of a quarterly royalty on revenues and a series of capacity payments as annual production expands.

�          Iluka believes the royalty is often undervalued by the investment community, given a majority of analysts typically apply an operating company weighted average cost of capital to discount the cash flow stream, whereas the risk characteristics of this revenue stream (in terms of capital, operating cost, counter party risk) are lower than that for a typical mining company and should be afforded an appropriate, lower discount rate. International market earnings and cash flow multiples routinely afforded listed royalty companies would support this view.